Peter Dowd: The proposal for the lifetime ISA followed a wider public consultation about the future of tax relief in pension provision. How do you think the LISA, as proposed, fits into that wider public debateQ 4747? Mr Surtees first.

Joseph Surtees: On that point, I would say—and this is applicable to both—that a lot of the behavioural research in this area talks about a process called hyperbolic discounting, which is to do with the fact that the further away something is, the less appealing it will be. So, any mechanisms we can have in any of these products that allows people to access them before two years, in the case of Help to Save, or before much further in the future, in terms of the LISA, will appeal and widen the eligibility a lot more.

Ed Boyd: There is a big problem here, which is that people are getting stuck in problem debt. It is a growing problem. I will check my stats on this—30 million people in the UK lack savings to keep up with essential bills for just one month if their income dropped by a quarter. Within the confines of that, rather than saying, “Do I think it is the financial services’ fault that we have not done enough, or the Government’s, or someone else’s?”, there is a real opportunity with products such as Help to Save for everyone to pull together and do what they need to do to help solve the problem together.
There is an opportunity for credit unions and community development financial institutions to play a big role, as well as mainstream financial institutions, not just in helping people to save but in helping to ensure that they are financially included. You have wider debates around issues such as the poverty premium, that is, the fact that people who have insecure incomes end up paying far more because they cannot do direct debits.
I do not think it is as simple as saying, “It’s just the financial services sector that needs to deal with this and help more.” I think there is a contribution needed from Government, from the private sector and from the voluntary sector as well to work together to help increase people’s ability to budget, to increase people’s incentives and ability to save and to ensure that people are financially included as they go on that journey.

Joseph Surtees: In terms of the success and appeal of auto-enrolment, I referred earlier to the NEST figures and auto-enrolment figures that say that there is more success and less opt-out from those with less income than from those with higher income. I would also refer you to a lot of work done in the United States by a couple of academics called Madrian and Shea, who looked at how auto-enrolment increases savings rates in businesses through payroll deduction. They found huge impacts, such as the number of people saving within a company doubling within a very short period of time once auto-enrolment was introduced.
On Help to Save, as I have said, auto-enrolment would really help, especially from the benefits side of things. There are even smaller tweaks that will help get that 500,000 figure closer to 3.5 million. Moving the bonus to getting it every six months would have a huge beneficial impact, as would allowing people to pay in an average of £50 a month rather than a maximum of £50 a month and looking at the issue of under 25-year-olds  being excluded from Help to Save by the benefits rules concerning working tax credits. There are small changes you can make now that would have a big impact.

Joseph Surtees: That is a very good point because there is a very specific point here about the risk that these accounts are under if somebody who has one either goes insolvent or does not go insolvent but falls into debt. That will mean they are at risk both of having the money taken during insolvency proceedings or taken by a third-party debt order. In the same way that was done with pensions under the Welfare Reform and Pensions Act 1999, where there was a wraparound of pension savings, it would be useful to have a think about whether the bonus, or even all the money in the account, should be protected if somebody begins to go insolvent, or is threatened by insolvency or their creditors.
On the second point, this is an ongoing conundrum. I know you are seeing Martin Lewis later and he will probably have a slightly different view on this. All of the research and lived experience of organisations such as  ours show that, while it is crucial to pay back your debts, people also need some savings or fall-back for sudden shocks. That does not only do their financial position well; it does their mental health position incredibly well. That has been proven by the work of the single financial statement that you can save while paying back debt. Yes, in terms of a purely rational decision, occasionally people saving instead of repaying debt may not be 100% the best thing to do but, in terms of the common sense best thing to do, I think it should be allowed.

Ed Boyd: Likewise, if someone has a significant level of debt and we say, “We think you should save the full amount because you’ve have just moved into work. You’re working 18 hours at the national living wage on universal credit,” for example—the advice needs to be tailored case by case. That is why I think the training experience of work coaches as they engage with these people is going to be absolutely crucial. You can say, “This is what the advice should be,” but the people who are advising people face to face and saying, “These are your options in terms of savings, paying off debt” are absolutely crucial. It will be really important to get that interface right.
This links with a programme that is being rolled out by DWP called universal support, which is the idea that when somebody comes into a jobcentre, they will not just get advice—“This is a job you can go for and we’ll try to push you into that”—but we will try to understand the root causes of why they are out of work. Debt is often one of those causes, so making sure that people have appropriate support for debt is really important.
I do not think I can say this is how it should happen in every situation. Building up savings is important, but you would not encourage someone to save the maximum amount in their scheme they could if they were paying off lots of debs separately. You would encourage them, if they have some spare capacity in terms of income, to use that to pay off the debt as part of the repayment plan. The interface with the work coach becomes very important to make sure that the advice is right.

Joseph Surtees: It is an excellent point that most or a lot of saving products, certainly up to now, have not really thought about the best way to appeal to low income consumers and the best way they can work with their lives. That is certainly a problem with ISAs and should be a slight problem with lifetime ISAs as well. The really good thing about Help to Save is that it has thought about how to appeal to this group and the bonus is the way that it has settled on that. All the evidence shows that that is overwhelmingly a great incentive and a much better incentive for this group, rather than interest rates or tax deductions or tax relief.
Other things could be looked at in future, such as prize-linked savings or even more innovative ideas such as adapting the auto-enrolment pension system, so that it has an accessible savings pot within in. I think that is slightly further down the road.

Peter Dowd: Q  Can I take this in a slightly different direction? I suppose it is linked, to some extent, to some people’s concern about self-employment. That is perfectly legitimate and okay, but there are many people in effect being forced, de facto, down the self-employment line to take pressure off employers to pay national insurance and so on. Are there concerns that employers will encourage their employees to choose a LISA instead of a workplace pension, in effect producing their contributions?